Lees-Mody Pact

October 28th 1933.

Much of India’s (in Raj Krishna’s memorable words) ‘Hindu growth rate’ can be traced back to this date. On that day, the Bombay Mill Owners Association signed the Lees-Mody Pact. This earned all Indian industrialists Nehru’s distrust. The British had succeeded once again in divide-and-rule.

Montagu Norman was already wreaking havoc with his economic policies in India. Demand had collapsed. USA and Europe were being ravaged by the Great Depression. The “money famine” had collapsed demand in India.

Britain agreed to “help”. Customs duty was lowered for British goods only to 20%. Britain agreed to buy Indian stock piled cotton at lower prices. GD Birla said “They have lost their nerve …”. Churchill made life difficult in Britain as this pact did not deliver as much as Churchill wanted and expected. The Indian population was still breathing – though just about.

Tibet went into the Chinese maws. Wars in Vietnam, the Cambodia, insurgency in Burma, the Iron curtain in Eastern Europe, made Eisenhower sound like a prophet. Communism seemed real – and a clear danger. While Nehru was not averse to democratic socialism, authoritarian Communism was anathema.

The Communists went ahead and formed the world’s first elected Communist government (the State Government in Kerala). Suddenly, communism looked a lot closer.

Socialist US and Europe

These 2 events and the pre-Independence Lees-Mody pact gave Nehru little choice but to be a Socialist. Possibly, India with its post-colonial grinding poverty of the 1950-70, under a cloud of propaganda, needed state directed freedom.

Between the two world wars, Europe and USA were socialist, in all, but name. The Welfare State took care of everything – food stamps, health insurance, unemployment benefits, subsidized housing, old age benefits and pension plans. Everything that a socialist state was supposed to deliver. Industrial licensing, State directed investments, Research and Development subsidies – to make the national economy deliver ‘better’.

India’s post-colonial choices were a mix of pragmatism, necessity and accepted wisdom of the times – and Western pressures and influences that are responsible for more than a fair share of guilt in these wrong choices.

The Social Contract

To those who complain about the ‘speed’ with which India moves, need to understand that abrupt change would have also broken the ‘social contract’ that the Indian Government has built up over the decades. There cannot be a change in the terms of contract before re-negotiation of this social contract. After all India created the value of the spoken word – ‘raghu kul reet sada chali ayee, pran jaye par vachan na jaye’

The Chinese Paper Dragon

The Chinese success is similar story. Much like USSR’s break-up, the Chinese monolith is more fragile than apparent. Apart from the usual suspects of democracy, economic disparities, social upheavals, etc, there are 3 factors, which most Chinese analysts miss.

One, the Tibetan’s are held together by force – and no one imagines that this holding them together by force, can be in perpetuity. The Muslim provinces of Xinjiang (another one-third of China) is usually ignored. But possibly, the biggest issue is the share of revenues of the Chinese central governments.

Gong’an county government in Hubei province has ordered its staff to puff their way through 230,000 packs of Hubei-produced cigarette brands a year, the ‘Global Times’ said.

Most expenditures on health, education, pension, unemployment, housing etc. are borne by the local government – and hence there is patchwork of systems which run across China. Most of executions and imprisonments of bureaucrats (including the Mao’s Cultural Revolution) is to demonstrate central authority. The PLA is the only factor that keeps China together. A Chinese Lech Walesa or a Nelson Mandela could unwind China very quickly.

Significantly, and thirdly, the Chinese diaspora and Western MNCs are biggest investors in China – and also the main beneficiaries. This currently keeps resentments of the local Chinese under control – as the neighbour is not getting much richer. But at one stage the domestic Chinese will want to greater say and control over the Chinese economy. He may not be happy with just a well paying job and abundant, low quality goods.

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Quicktake focusses more on current events, recent events, reports, media buzz, matters of topical interests. Typically, Quicktakes are shorter than 2ndlook. Sometimes a few Quicktakes, morph into a 2ndlook post.